The Central Bank of Nigeria (CBN) recently announced an increase in the cash
reserves ratio and monetary policy rate, which Peter Obi, the presidential
candidate of the Labour Party in the 2023 election, said would make things
worse for the majority of Nigerians.
Obi in a statement released on his X handle today February 29 says the label of
being a vintage Onitsha-based trader does not in any way confer on him the
status of an economic expert but that his vast trading knowledge and his
involvement in the real sector, tells him that the recent decision of the
Monetary Policy Committee to increase the Monetary Policy Rate, MPR, to 22.5%
and the Cash Reserve Ratio, CRR, to 45% will further worsen the economic
situation of most Nigerian households as it is bound to cause more job losses
in the productive sector.
He went on to state that the decision is counterproductive as it would not
address the intended purpose of managing the money supply and will also worsen
the fragile economy as the supply of funds would dry up for the real sector.
His statement reads
‘’Let me confess that the label of being a vintage Onitsha-based trader does
not in any way confer on me the status of an economic expert. With my vast
trading knowledge and my involvement in the real sector, I am of the strong
opinion that the recent decision of the Monetary Policy Committee to increase
the Monetary Policy Rate, MPR, to 22.5% and the Cash Reserve Ratio, CRR, to 45%
will further worsen the economic situation of most Nigerian households as it is
bound to cause more job losses in the productive sector, especially
manufacturing and other sectors that rely on bank loans and credit facilities
for their funding needs.
Tightening liquidity in the financial system does not improve productivity, ie
food production, which is the major cause of inflation in Nigeria. Moreover,
only about 12% of N3.6 trillion of the total money in circulation is in the
banking system which means that 88%, about N3.2 trillion is outside the banking
system.
So, this measure would rather be counterproductive as it would not address the
intended purpose of managing the money supply. These new measures will worsen
the fragile economy as the supply of funds would dry up for the real sector,
and the new MPR rate hike will push the interest rate on loans to above 30%,
which would be very difficult for the real sector operators especially
manufacturers and SMEs to repay; resulting, obviously, in increased bad loans,
and worsening the nation’s economic situation.
The most critical way to manage our high rate of inflation and decline in
production is for the government to address the issue of insecurity in the
country, which will allow for increased food, and crude oil production, and an
overall increase in production, which will make products, especially food,
cheaper. This way we would increase our productivity as well as restore the
confidence of FDIs and FPIs to come back to the country.
I must caution that what the Nigerian economy needs now is hard headed practical
originality and results. Tinkering with classical economic theories can only
deepen our crisis.
